This document is a lecture on accounting for lawyers that introduces accounting concepts. It defines accounting as identifying, measuring, recording, classifying, summarizing, analyzing, interpreting and communicating economic information to users for decision making. Accounting information has various users, both internal and external to an organization, who use it for different purposes. While accounting provides useful information, it also has limitations as it uses past data and subjective estimates and may not capture all non-financial aspects of a business.

1. THE LAW SCHOOL OF
TANZANIA
LS 109: ACCOUNTING FOR LAWYERS
LECTURE 1: INTRODUCTION TO
ACCOUNTING INFORMATION

2. INTRODUCTION
• The lecture introduces you to the users of
accounting information, its purpose, uses and
limitations. It then analyses its importance and
role within a business context at a strategic,
organizational and environmental level.
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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3. Learning Objectives
At the end of this lecture, you will be able to:
• Understand accounting and its roles;
• Identify the uses and users of accounting
information;
• Describe the way in which accounting helps
managers in making decisions;
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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4. CONTENTS
1. Definition of Accounting
• Recording, classifying, summarizing
transactions – observe monetary terms;
interpretations & summary. Also, observe
the quantitative aspects, the nature of the
information and decision making aspect.
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5. CONTENTS
2. Purpose of accounting information
• Two levels can be identified – individual
and corporate levels. The purpose of
accounting information differs between the
two levels depending on the goals of the
entity.
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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6. CONTENTS
3. Users of accounting information
• These are internal and external users.
Each user group has different needs for
and application of accounting information
4. Limitation of accounting information
• Identify the weaknesses of the accounting
information
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B. Com
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7. DEFINITIONS OF ACCOUNTING AND
BOOKKEEPING
DEFINITION OF ACCOUNTING
• Accounting is the process of identifying,
measuring and communicating the
economic information of an organization to
various users who need the information for
decision making.
• This definition identifies various activities
that make the accounting process.
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B. Com
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8. DEFINITION OF ACCOUNTING (Cont’d)
• Thus, accounting entails the following
activities:
• identifying transactions and events,
• measuring, recording, classifying,
summarising, analyzing,
• interpreting and communicating.
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9. DEFINITION OF ACCOUNTING (Cont’d)
• Now, let us briefly look at each of these
activities:
(a) Identifying the transactions and events:
Accounting identifies transactions and
events of a specific entity. A transaction is
an exchange in which each participant
receives or scarifies value (for example
sale of goods for cash or on credit).
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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10. DEFINITION OF ACCOUNTING (Cont’d)
• It involves exchange of goods and
services on cash or credit basis.
• b) Measuring the identified and events: It
involves the measurement of transactions
and events in monetary terms.
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B. Com
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11. DEFINITION OF ACCOUNTING (Cont’d)
c) Recording: It is concerned with recording
of transactions and events in orderly
manner in books of original entry.
d) Classifying: It is concerned with grouping
recorded transactions of similar type at
one place so as to be most useful to the
business. This activity is performed by
maintaining the ledger in which different
accounts are opened
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12. DEFINITION OF ACCOUNTING (Cont’d)
• All related transactions are brought to one
place by posting. For example, all sales of
goods for or on credit on different dates are
brought to sales account.
(e) Summarizing: It involves the periodic
preparation of financial reports or
statements such as Income Statement and
Statement of Financial Position popularly
known as Balance Sheet.
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B. Com
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13. DEFINITION OF ACCOUNTING (Cont’d)
• (f) Analysing: This is concerned with
establishment of relationship between the
various items or group of items taken
from either Income Statement or
Statement of Financial Position or both.
The purpose of analysis is to identify the
financial strengths and weaknesses of the
business. It provides the basis for
interpretation.
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B. Com
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14. DEFINITION OF ACCOUNTING (Cont’d)
(g) Interpreting: It is concerned with
explaining the meaning and significance of
the results produced by the analysis of
financial reports or statements
(h) Communicating: This is concerned with
the transmission of summarized, analysed
and interpreted information to the users to
enable them to make decisions.
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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15. DEFINITION BOOKKEEPING
• Bookkeeping is a part of accounting which
is concerned with the recording of
business transactions on a day to day
basis or maintenance of books of
accounts. The nature of a bookkeeper's
work is clerical and may be done using
mechanical or electronic equipment. It only
covers the first four activities of the
accounting process
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16. COMPARISON BETWEEN BOOKEEPING
AND ACCOUNTING
Having seen the relationship between
bookkeeping and accounting, let us now
look at their differences. Bookkeeping and
accounting differ in the following aspects:
(a) Scope: Bookkeeping covers the first four
activities of the accounting process while
accounting, in addition to bookkeeping
covers the last four activities of the
process
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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17. COMPARISON BETWEEN BOOKEEPING
AND ACCOUNTING (Cont’d)
(b) Stage: Bookkeeping is the primary stage
whereas accounting is the secondary stage.
Accounting continue where bookkeeping
ends.
(c ) Basic objective: The basic objective of
bookkeeping is to maintain systematic records
of financial transactions while the basic
objective of accounting is to prepare financial
reports and statements based on the records
as well as analysing & interpreting the reports.
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B. Com
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18. COMPARISON BETWEEN BOOKEEPING
AND ACCOUNTING (Cont’d)
(d) Nature of job: The job of a bookkeeper is
usually routine and clerical in nature while
the job of an accountant is analytical in
nature
(e) Knowledge level: The bookkeeper is not
required to have a higher level of training
and knowledge whereas the accountant is
required to have a higher level of training
and knowledge than the bookkeeper
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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19. COMPARISON BETWEEN BOOKEEPING
AND ACCOUNTING (Cont’d)
f) Supervision and checking: The
bookkeeper does not supervise and check
the work of an accountant while the
accountant supervises and checks the
work of a bookkeeper.
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20. CLASSIFICATION OF ACCOUNTING
INFORMATION
Accounting information may be classified in
different ways such as on the basis of
purpose of information, on the basis of
measurement criteria etc. The various
types of accounting information are as
follows:
• (a) Accounting information relating to
financial transactions and events.
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21. CLASSIFICATION OF ACCOUNTING
INFORMATION (Cont’d)
b) Accounting information relating to cost of
a product, operation or a function
c ) Accounting information relating to social
effects of business decisions
d) Accounting information relating to human
resources
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22. IMPORTANCE/NEED FOR ACCOUNTING
• Information on profit/loss
• Ready reference whenever info. Is required
• Helps govt. In tax assessment
• It acts as a tool of control over use of
resources.
• It acts as an aid to planning.
• Provide info about finanancial performance
/position and cash flow statement
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23. KEY CHARACTERISTICS OF
ACCOUNTING INFORMATION
• Understandability (expression with clarity)
• Relevance (for decision making)
• Consistency (treatment of similar
items/application of accounting policies)
• Comparability (the trend or with other
group in the same industry)
• Reliability (truthful, accurate, complete)
• Objectivity (neutral/not biased)
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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24. USERS OF ACCOUNTING INFORMATION
Accounting is often called as the language of
business because it is the medium of
communication between a business firm
and the various parties interested in its
financial activities. The users of accounting
information include present and potential
investors, management, employees,
lenders, suppliers, customers, and
government and their agencies
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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25. USERS OF ACCOUNTING INFORMATION
(Cont’d)
Possible users of accounting information
and their needs for information include:
(a) Owners: as providers of risk capital
they need information to judge prospects
for their investment and to decide
whether they should hold, buy or sell their
investment. They are concerned with risk
associated with and return to their
investment.
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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26. USERS OF ACCOUNTING INFORMATION
(Cont’d)
(b) Present and prospective lenders. They
need information to assess future
profitability and liquidity of the firm and to
decide whether to lend money and on
what terms and conditions. They are also
interested in information to determine
whether their loans and interests attaching
to them will be paid when they fall due
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B. Com
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27. USERS OF ACCOUNTING INFORMATION
(Cont’d)
c) Present and prospective suppliers: They
need information to assess the credit worth of
the firm so as to determine whether amount
owing to them will be paid when they are due.
d) Employees: Employees and their respective
groups are interested in information about the
stability of and profitability of the employers.
They are also need to assess the ability of
the business to pay remuneration, retirement
benefits and to provide employt opportunities.
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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28. USERS OF ACCOUNTING INFORMATION
(Cont’d)
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• (e) Customers: Customers have an
interest in information about the
continuation of business especially when
they have established a long-term
business relationship with or dependent on
the firm
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29. USERS OF ACCOUNTING INFORMATION
(Cont’d)
(f) Government and their agencies: The
government and its agencies have interest
in firm's accounting information regulate the
activities of the firm, determine taxation
policies and as the basis of national
income. It also wants to ensure that the firm
comply with laws on wage payments and
employee benefits.
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30. USERS OF ACCOUNTING INFORMATION
(Cont’d)
(g) Management: Management need
information to review the firm's short-term
and long-term solvency, profitability in
relation to turnover, profitability in relation
to investments and to decide upon the
course of action to be taken in future.
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B. Com
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31. LIMITATION OF ACCOUNTING
INFORMATION
• Subjective nature inherent (e.g. Depreciation,
stock valuation, R&D etc.) Assumptions
(alternative policies)
• In ability to record non-monetary activities (e.g.
Quality of staff, customer, public image etc.)
• Instability of unit of measurement.
• Non recording of fully depreciated assets and
those acquired without payments. (eg. Goodwill
or donation)
• Financial statements are backward looking, i.e.
uses past data (value of assets is what it can
generate for the future)
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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32. LIMITATION OF ACCOUNTING
INFORMATION (Cont’d)
• Financial statements represent snap short
information (Slight variation of time before
or after will lead into different situation)
• They are mult-purpose statements (it is
unlike generic statement to meet different
interests of varied users)
• Subject to manipulation by management
• Conflicting information (ratio analysis)
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33. Conclusion
• Managers should recognise these
limitations and adjust data wherever
possible to get meaningful results.
Kalanje J.C. CPA(T), CPSP, MBA,
B. Com
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